STATE AND LOCAL TAXATION

March 2000

NEW YORK BENEFICIARIES NOW ENTITLED TO PENSION AND ANNUITY EXCLUSION

By Emanuel Eichler, CPA, Cornick, Garber & Sandler, LLP

New rules took effect for 1999 for taxable income from pensions and annuities. As before, in New York State, an individual who is age 59 wQ or older can exclude from taxable income up to $20,000 of pension and annuity distributions received each year. To qualify for this exclusion, the pension and annuity must generally be a series of periodic payments attributable to personal services that the individual performed prior to retirement. In addition, the payments must be either attributable to an employer-employee relationship or from contributions made to a tax-deductible retirement plan, such as a Keogh plan or IRA.

Under an exception to the rule requiring periodic payments, distributions from IRAs or Keogh plans maintained by self-employed individuals qualify for the exclusion regardless of whether the distributions are periodic payments or lump-sum distributions.

Because of the new rules, beginning in tax year 1999, this exclusion extends to beneficiaries that receive pension and annuity payments created by a decedent. The beneficiary is entitled to the same exclusion from income to which the decedent would have been entitled for payments received on or after the date the decedent would have been 59 wQ . Moreover, the exclusion can be claimed even if the beneficiary is less than 59 wQ years old.

However, in cases with more than one beneficiary, the $20,000 exclusion must be allocated among all the beneficiaries in the same ratio that the pension and annuity distributions are made, and the total income modification of all beneficiaries cannot exceed $20,000. Using this exclusion, the tax savings for a sole beneficiary who receives at least $20,000 a year in payments could be as much as $1,370; a New York City resident could save as much as an additional $766. *